Correlation Between LyondellBasell Industries and Balchem

Can any of the company-specific risk be diversified away by investing in both LyondellBasell Industries and Balchem at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining LyondellBasell Industries and Balchem into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between LyondellBasell Industries NV and Balchem, you can compare the effects of market volatilities on LyondellBasell Industries and Balchem and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in LyondellBasell Industries with a short position of Balchem. Check out your portfolio center. Please also check ongoing floating volatility patterns of LyondellBasell Industries and Balchem.

Diversification Opportunities for LyondellBasell Industries and Balchem

0.09

Correlation Coefficient

LyondellBasell Industries  Balchem

Significant diversification

The 3 months correlation between LyondellBasell and Balchem is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding LyondellBasell Industries NV and Balchem in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balchem and LyondellBasell Industries is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on LyondellBasell Industries NV are associated (or correlated) with Balchem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Balchem has no effect on the direction of LyondellBasell Industries i.e., LyondellBasell Industries and Balchem go up and down completely randomly.

Pair Corralation between LyondellBasell Industries and Balchem

Considering the 90-day investment horizon LyondellBasell Industries NV is expected to under-perform the Balchem. But the stock apears to be less risky and, when comparing its historical volatility, LyondellBasell Industries NV is 1.22 times less risky than Balchem. The stock trades about -0.29 of its potential returns per unit of risk. The Balchem is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest  17,440  in Balchem on October 6, 2024 and sell it today you would lose (1,532) from holding Balchem or give up 8.78% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

LyondellBasell Industries NV  vs.  Balchem

LyondellBasell Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LyondellBasell Industries NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Balchem

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Balchem has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Balchem is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with LyondellBasell Industries and Balchem

The main advantage of trading using opposite LyondellBasell Industries and Balchem positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LyondellBasell Industries position performs unexpectedly, Balchem can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Balchem will offset losses from the drop in Balchem's long position.

The idea behind LyondellBasell Industries NV and Balchem pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.